Delaware is a great place to incorporate. It’s not always a great place to resolve a commercial dispute. If your contract has a choice-of-law clause pointing to Delaware for anything other than governance or equity issues, it deserves a second look. Here’s why — and what to do instead.
The Delaware Myth
Delaware has earned its reputation in one specific lane: corporate governance. Its Court of Chancery is genuinely elite. The judges are sophisticated, the case law is deep, and if you’re fighting about whether a board validly approved a merger or whether a stockholder agreement is enforceable, Delaware is the right call. No question.
But here’s where clients — and sometimes their lawyers — make a mistake: they assume that because a company is incorporated in Delaware, Delaware law should govern everything. That’s a category error. Incorporation law and commercial contract law are different animals.
Delaware’s commercial contract case law is thinner than most practitioners realize. For disputes involving supply agreements, services contracts, licensing deals, joint ventures, or complex B2B transactions, you often find yourself in either the Court of Chancery (which prefers equity disputes) or the Superior Court’s Complex Commercial Litigation Division — a solid but less specialized forum.
What Delaware Is — and Isn’t — Built For
Think of it this way: Delaware is a specialized tool. It’s a scalpel for corporate work. Using it for commercial disputes is like using a scalpel to cut steak. Technically possible. Not optimal.
Delaware is the right choice of law for:
- Corporate formation, governance, and internal affairs — the Court of Chancery is unmatched here
- Stockholder disputes, fiduciary duty claims, and derivative actions
- Mergers and acquisition disputes where the deal involves Delaware entities with governance-driven claims
- LLC agreement disputes where internal affairs doctrine applies
Delaware is often not the right choice for:
- Complex commercial contracts (supply, services, licensing, distribution)
- Finance and lending disputes — New York is the national standard here
- Energy and infrastructure agreements with operational complexity
- Real estate-adjacent transactions outside Delaware
- Disputes where jury trial rights matter to your client — Delaware Chancery doesn’t provide them
Better Alternatives for Commercial Disputes
The right choice-of-law answer depends on what you’re contracting about and where your client operates. Here’s a quick reference:
| Jurisdiction | Best For | Commercial Dispute Strength | Notable Feature |
|---|---|---|---|
| Delaware | Corporate/governance disputes | Moderate — limited commercial focus | Chancery Court; sophisticated judges |
| New York | Finance, M&A, complex commercial | Excellent | Deep case law; parties can elect NY law by contract |
| Minnesota | Regional B2B, service agreements | Strong; practical courts | Home court advantage; predictable |
| Texas | Energy, real estate, infrastructure | Good; business-friendly bench | Strong energy sector precedent |
| California | Tech/IP, employment, consumer | Mixed; unpredictable on contracts | Anti-waiver rules can override choice clauses |
For most of Avisen’s clients — Minnesota-based B2B companies in energy, infrastructure, and tech — Minnesota law is often the right call for commercial contracts. The courts are practical, the case law is predictable, and there’s a real home court advantage when disputes arise. New York is the right call for any financing transaction or deal with sophisticated financial counterparties.
The Practical Playbook
Here’s my recommendation for how to approach choice-of-law decisions going forward:
- Split it when appropriate. Use Delaware internal affairs for governance provisions; use your operating jurisdiction for commercial terms. This is more common than clients realize and courts generally enforce it.
- Don’t default. A Delaware governing law clause that no one thought about is a ticking clock. Review any template that reflexively defaults to Delaware and ask whether it actually serves the client’s interests in a dispute scenario.
- Watch for California. If either party has California operations, California’s anti-waiver rules on employment and consumer issues can override a Delaware choice clause. Get ahead of this at drafting, not at litigation.
- Pair choice-of-law with forum selection. A well-crafted governing law clause without a matching forum selection clause is a loose end. They should be coordinated.
Have a Delaware Clause in Your Contract?
If you’re working on a commercial contract right now and the governing law clause defaults to Delaware, let’s talk before it goes out. Five minutes of conversation at drafting is worth a lot more than a governing law argument in front of a judge who’s wondering why Delaware law governs a dispute between two Minnesota companies.
Frequently Asked Questions
Should I use Delaware law in my commercial contract if my company is incorporated in Delaware?
Not necessarily. Delaware law is well-suited for corporate governance and internal affairs disputes, but its commercial contract case law is thinner than many practitioners realize. For supply agreements, services contracts, licensing deals, and other B2B transactions, your operating jurisdiction — such as Minnesota or New York — is often a stronger choice.
What is a choice-of-law clause and why does it matter?
A choice-of-law clause specifies which state’s laws will govern the interpretation and enforcement of a contract. It matters because different states have very different bodies of commercial case law, court systems, and procedural rules. A poorly chosen governing law clause can put you at a disadvantage before litigation even begins.
What state law should govern a commercial contract in Minnesota?
For most Minnesota-based B2B companies — particularly in energy, infrastructure, and tech — Minnesota law is typically the most practical choice. Minnesota courts are predictable, the case law is well-developed for commercial disputes, and litigating under your home state’s law provides a meaningful strategic advantage.
When is New York law the right choice for a commercial contract?
New York is the preferred governing law for financing transactions, lending agreements, and deals involving sophisticated financial counterparties. It has exceptionally deep commercial case law, and parties can elect New York law by contract even without a direct connection to the state.
What happens if my contract has a Delaware choice-of-law clause but one party operates in California?
California’s anti-waiver rules on employment and consumer issues can override a Delaware governing law clause, regardless of what the contract says. If either party has California operations, this risk should be addressed at the drafting stage — not discovered for the first time in litigation.
This post is provided for informational purposes and does not constitute legal advice. Choice-of-law analysis is fact-specific and should be reviewed in the context of your particular transaction. Contact Todd Taylor at ttaylor@avisenlegal.com with questions.
